Flawed Buffett Rule Reintroduced in Senate
May 15, 2014
This week, Senator Elizabeth Warren (D-MA) reintroduced the Buffett Rule under the name the “Fair Share Tax.” This tax would be used to pay for a program that allows students to refinance their higher education loans at lower interest rates.
Generally, the “Fair Share Tax,” or Buffett Rule is a 30 percent minimum tax (income tax plus payroll tax minus charitable deductions) on individuals who make $1,000,000 or more.
High Income Individuals Already Pay High Effective Tax Rates and Pay a Disproportionately Large Share of the Income Tax that the Federal Government Collects
The whole idea of the “Fair Share Tax” is based on the belief the high income individuals are not paying enough in taxes, or are paying lower effective tax rates than those who earn less. Warren Buffett famously claimed that his employees paid rates that average 36 percent while he only paid an effective tax rate of 17 percent.
Anecdotes aside, this is not how the U.S. tax system works. Our progressive tax system taxes people at higher rates as they earn more. A recent Joint Committee on Taxation (JCT) study showed that those who make $1,000,000 or more pay an effective tax rate of 27 percent on just their federal individual income tax. Although not an effective tax rate of 30 percent, it is still higher than any other income group.